Wednesday, December 25, 2013

Paul Krugman Poses a Question and Gets a Great Answer

Paul Krugman's post today asks whether corporations can prosper in a moderately depressed economy because it would allow them a monopsonistic relationship with labor. His answer is nuanced, but yes, corporations might manage high profits in a down economy while workers would languish.

But it was a spot-on comment -- among others not so bright -- that really stated what I believe has become the reality across America. Here's Jack A. from California:
I hope that Prof. Krugman will follow up on his now two comments on why/how corporations may enjoy enormous profits in a depressed economy, with "official" unemployment at 7% (and who knows what the unofficial rate is), and care little or nothing about employment.

If profits are not significantly related to providing anything like full employment, then shouldn't we re-think some of the fundamentals of a capitalist/market economy? If profits are the highest goal, and millions of lives must be sacrificed to sustain them, what is the economic justification for such an economy? What is the moral justification?

The argument that the market economy is the best system to provide jobs and a decent living for workers, may no longer be tenable.

If that is the case, then the jobs v. inequality argument takes on new meaning. At some level, the issues of jobs and inequality are related. But it seems a more direct path to change if the emphasis is upon the huge gap in inequality that has opened up in our time, not tweaking the system to churn out a few more jobs.

Such an emphasis would include tax reform, strengthening of the social/economic net, support for education at all levels, infrastructural projects, etc. The driver of these changes, however, may be the energy and passion of both the employed and unemployed who are the losers in the current system, and who are destined to lose even more unless it is changed.
There it is, and there is the basis for my argument in favor of a guaranteed income (Switzerland recently entertained it as a proposition on a national ballot). Once our market economy reaches a point where it prospers while leaving aside a large number of its participants from that prosperity, the economy no longer serves the purpose of offering the opportunity for life, liberty, and the pursuit of happiness. Therefore, another means of the distribution of the spoils of production is required for the entire economy to prosper.

There are a lot of ways to achieve this in a society. The guaranteed income is one. Another, introduced to me by my friend Tobi, is the carbon footprint tax, in which someone with a low carbon footprint would actually receive tax credits that amount to an income while those with a large carbon footprint, say, the wealthy with their private jets and yachts, would pick up the tab. A similar effect would be visited upon the business world, with low-carbon-footprint firms receiving credits and large fossil-fuel enterprises subsidizing the clean energy crowd's energy costs. Talk about aligning incentives.

I like Tobi's way because it redistributes income with the added virtue of tilting the world toward clean energy with a marked assist to abating global warming. But there may be more than one way to skin a cat, to choose a metaphor that PETA might not appreciate.

If efficient markets fail a society, it's time that society finds a fix for those markets. But, as Krugman points out, fat chance. What he says is true: Corporate America will pour millions into Fix the Debt -- with its emphasis on cutting "entitlements," meaning reducing income redistribution -- while spending not a nickel on efforts to Fix the Economy. Oh well, that's what revolutions are for.

With incomes down 14% since their 1972 peak, this revolution is a long time coming. To me, it's none too soon.

Footnotes. To avoid such a revolution, establish a guaranteed income. Studies show it minimally decreased the incentive to work and led to higher graduation rates, fewer hospitalizations, fewer work injuries and car crashes, and fewer psychiatric hospitalizations and mental-illness consultations. Read the professor's report here.

As for a carbon tax approach, read this. Peruse the entire Carbon Tax Center site to learn how it can be revenue-neutral -- thus not harming the overall economy -- while achieving good policy ends.

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